Japan - Country Commercial Guide
Trade Financing
Last published date:

Methods of Payment

There are several methods used to settle payment in Japan: cash in advance, letter of credit used in conjunction with a documentary draft (time or sight), promissory note, documentary collection or draft, open account, and consignment sales. As with U.S. domestic transactions, a major factor in determining the method of payment is the degree of trust in the buyer’s ability and willingness to pay. 

Because of the protection it offers to the U.S. exporter and the Japanese importer, an irrevocable letter of credit (L/C) payable at sight is commonly used for settlement of international transactions. As large Japanese general trading companies often serve as intermediaries to small and medium-sized companies, L/Cs are often issued in their name rather than in the name of the end-user of the product. With the trading company taking on the risk of the transaction, the 

U.S. firm is protected from the possible bankruptcy of the smaller company. 

Another payment option is the use of documentary collection or open account with international credit insurance that, unlike the letter of credit, allows the importer’s line of credit to remain open. At the same time, this option protects the exporter if the buyer goes bankrupt or cannot pay. International credit insurance can be obtained from the Export-Import Bank of the United States or private insurers. 

The promissory note (yakusoku tegata) is a payment method widely used in Japan but is sometimes unfamiliar to U.S. companies. Promissory notes are IOUs with a promise to pay later, typically 90 to 120 days. Banks will often provide short-term financing through discounting and rollover of notes. Factoring and other forms of receivables financing (whether with or without recourse) are not common in Japan, and more conservative businesspeople find such arrangements a violation of the “relationship” between buyer and seller. It should be noted that it is not uncommon in Japan for the buyer to request and be granted an extension of the term of the tegata if there are cash-flow problems. 

For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide: A Quick Reference for U.S. Exporters.

Banking Systems

While financial system deregulation and international competitive pressure have drastically changed the face of Japanese banking, the connection between corporate finance and banking institutions and non-financial corporations remains much tighter in Japan than in the United States and extends far beyond simple lender/borrower relationships. Much corporate banking business is rooted in either business groups with interlocking shareholding (keiretsu) or in regional relationships. Japanese banks are frequently shareholders in companies that conduct banking business with them. 

This unique relationship between a company and its bank has been long-standing; until recently, a Japanese company rarely changed its primary lender, although it would occasionally “shop around” for better credit arrangements. Banks are often large shareholders in publicly traded corporations (although banks are in the process of reducing their equity holdings), have close relationships with both local governments and national regulatory agencies, and often play a coordinating role among their clients. It remains safe to say that the Japanese commercial bank system is much more relationship-oriented than the transaction-based U.S. system. 

While large corporations with suitable credit ratings (especially export-oriented firms) can rely on corporate bond issues rather than banks for financing, bank lending continues to be the primary financing method for small and medium sized companies and for many larger companies as well. 

Japanese banks offer regular and time deposits and checking accounts for businesses. Checks are negotiable instruments that are in effect payable to the bearer (rather than to the order of the payee, as in the United States). This limits the usefulness of checks, and in fact, most payments are made by electronic bank transfer (which cost a few hundred yen on average), or by sending cash through the postal system. The banks (and now investment/securities firms) historically waged an uphill battle against the postal savings system for consumer deposits, but now that the postal savings bank must pay taxes and deposit insurance, in addition to losing its implicit government guarantee, competition for deposits has intensified. 

Many individuals use electronic bank transfers to settle accounts. Cash settlement is also still common, and the Post Office has a mechanism for payment by “cash envelope” which is used in direct marketing and other applications. Most Japanese banks operate 24-hour cash machines (as do some credit card companies). Bank and other credit cards are easy to obtain and are widely accepted. Some bank credit cards offer revolving credit, but in most cases, balances are paid in full monthly via automatic debiting from bank accounts. 

The relationship among trading companies, end-user, and exporters is an important feature of the financing environment in Japan. The Japanese general trading company (sogo shosha) is an integrated, comprehensive organization that embraces a range of functions including marketing and distribution, financing and shipping and the gathering of commercial information. It performs functions that in the United States would be carried out by import/export companies, freight forwarders, banks, law firms, accounting firms and business consultants. Thus, U.S. firms dealing with trading companies should familiarize themselves with the financing capabilities of such firms.

Foreign Exchange Controls

Foreign exchange regulations have little impact on normal business transactions in Japan. 

U.S. Banks and Local Correspondent Banks

U.S. Banks and Financial Groups in Japan include: 

Bank of America  

Bank of New York Mellon Group  


J.P. Morgan Chase  

Wells Fargo  

Major Local Correspondent Banks include:  

Aozora Bank  

Mizuho Bank  

MUFG Bank  

Resona Bank  

Shinsei Bank  

Sumitomo Mitsui Banking Corporation  

To access Japan’s ICS section on financing, visit the U.S. Department of State Investment Climate Statement website.